U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20063 / March 30, 2007
Securities and Exhange Commission v. One or More Unknown Purchasers of Call Options for the Common Stock of TXU Corp., Civil Action No. 07C1208 (N.D. Ill.)
Securities and Exchange Commission Obtains Emergency Asset Freeze Against Additional Defendants Who Purchased Call Options for TXU Corp. Stock Prior to Acquisition Announcement
British Citizens Use Domestic Accounts to Buy Call Options Just Prior to $45 Billion Acquisition Announcement; as much as $5.4 Million Frozen
On March 28, 2007, the United States District Court for the Northern District of Illinois in Chicago entered a Temporary Restraining Order freezing assets of Sunil and Seema Sehgal, a married couple residing in the United Kingdom. The Court issued the order following the Commission's filing of an Amended Complaint, which added the Sehgals to the insider trading case that was previously filed on March 2, 2007, against certain Unknown Purchasers of TXU call options.
The Amended Complaint alleges that the Sehgal's made highly profitable and suspicious purchases of 700 call option contracts for the common stock of TXU Corp. through accounts at Charles Schwab & Co., Inc., and Clark Dodge & Co, Inc., in January and February 2007. These purchases were made in advance of a public announcement (the "Announcement") on February 26, 2007, that TXU had executed a merger agreement with private equity groups headed by Kohlberg Kravis Roberts & Co., Texas Pacific Group and Goldman Sachs & Co. The Amended Complaint further alleges that as a result of the Announcement, TXU's common stock jumped more than 13% over its previous trading day closing price, placing the defendants in a position to gain substantial profits. Most of the call option contracts were "out of the money" and were set to expire in March and April. The Amended Complaint further alleges that, as a result of the increase in price of TXU stock following the Announcement, the illicit profits on the Sehgal's option contracts total approximately $270,000.
The Commission alleges that the Sehgals engaged in insider trading in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission is seeking permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest thereon, and civil monetary penalties.
The Commission's complaint against the Unknown Purchaser alleges that between February 21 and February 23 - prior to the public disclosure of the merger agreement - while in possession of material, nonpublic information regarding the acquisition offer, the Unknown Purchasers, using overseas accounts, purchased over 8,020 call option contracts for TXU stock. The unrealized illicit profits on these option contracts total approximately $5.4 million. On March 28, 2007, the District Court also approved an extension of the asset freeze as to the Unknown Purchasers who purchased TXU securities through Credit Suisse in Zurich and Fimat Banque Frankfurt Zweigniederlassung. The Court also approved a 60-day extension of the asset freeze as to the Unknown Purchaser who traded through UBS AG London.
The Commission wishes to thank the Chicago Board Options Exchange, the NYSE, and the Financial Services Authority of the United Kingdom for their assistance in this matter.